Financing companies in general and at Te Aroha in particular

Those investing in mining companies were, wisely, warned to tread warily to avoid being duped by ‘wild cat’ promotions, for many companies were blatant speculations and most would fail. The three main causes of failures were misrepresentation of the value of the ore, over-capitalization combined with insufficient working capital, and mismanagement. Mining investment was a form of gambling, with professional speculators seeking quick profits not long-term rewards. Companies were floated on the basis of inadequate prospecting, and some flotations were unquestionably fraudulent. Laws creating no or limited liability companies were designed to protect investors, but they encouraged floating companies with inadequate capital. Issuing partly paid-up shares required shareholders to pay calls, but often they preferred to forfeit their interests; and sometimes dummies were used to avoid payment. Despite claims of having found good ore, much unproven ground was floated, and share prices fluctuated depending on the latest reports of ore values. Fraudulent or at best exaggerated assay results were produced, for often samples did not reflect the general values. Examples are cited of how to salt mines or provide misleading assays and of companies shepherding their properties in the hope of nearby companies making good discoveries and enabling them to sell their ground for an unearned profit. Management was an expensive cost, especially in overseas companies, but insufficient money was provided to prospect and develop ground. Press ‘puffery’ was condemned, but newspapers relied on information provided by mine managers. Surveyors sometimes produced plans showing reefs that did not exist, and many ‘experts’ imported from overseas were selected to produce the optimistic reports that company promoters required. Examples are cited of deliberately false reports and dubious prospectuses listing carefully selected shareholders’ names to attract investors. And in some cases companies even had either no title or an insecure one to the ground being floated. As stockbrokers could not be trusted, there was opposition to brokers being directors. Nor could miners always be trusted, as they played the market also. Overselling and forward selling of shares were problems, but the main ones were that under-capitalized companies had insufficient working capital: several examples are cited. Some companies were over-capitalized, and it was common to erect expensive plants prematurely. Because only a small percentage of the nominal capital was paid up, companies had to rely on calls to increase their capital. And vendors and company promoters made excessive profits from floating mines. In short, company flotation was more a form of gambling than a way of enabling honest mining